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The real estate landscape has seen significant turbulence in recent years. Following a period of intense activity marked by record-low interest rates and fierce bidding wars, mortgage rates have surged to their highest levels in over two decades. Between August 2021, when rates were a mere 3 percent, and August 2023, they soared beyond 7 percent, resulting in a slowdown in home buying. Despite this, the persistently limited housing supply continues to render homeownership unattainable for many across the United States.
As we approach 2024, the housing market’s trajectory is a subject of considerable speculation. However, prospective homeowners often engage in long-term planning, so we’d like to ask about forecasts extending to 2028. To provide insight into the housing market’s future, we sought the perspectives of several industry experts.
The Current State of the Local Housing Market
Los Angeles, CA
The median list price for Los Angeles, CA is $1,499,000 with the market action index hovering around 43. This is about the same as last month’s market action index of 43. Inventory has held steady at or around 1,149.
Inventory
While inventory levels have improved compared to a year ago, data from the NAR reveals that the supply of available homes remains notably low. The unsold existing homes inventory stood at a 3.3-month supply, while a balanced market typically requires a 5- to 6-month supply.
Days on Market
The unsold existing homes inventory stood at a 3.3-month supply, while a balanced market typically requires a 5- to 6-month supply.
Homes Sold
Fewer existing homes are changing hands, as homeowners opt to retain properties with locked-in mortgage rates that are lower than current rates. In July, sales declined by over 16 percent year-over-year, according to the NAR. In contrast, data from the NAHB indicated a 4.4 percent increase in sales of new single-family homes from June to July.
Mortgage Rates
As of late August, Bankrate’s national survey of major lenders reported an average 30-year mortgage rate of 7.32 percent, the highest level seen since 2001.
Forecast for Mortgage Rates and Types
According to Lawrence Yun, NAR’s chief economist, mortgage interest rates may continue to rise, with a general level around 7 percent for the remainder of this year and most of 2024. Yun anticipates rates returning to 5.5 or 6 percent within two years. Danushka Nanayakkara-Skillington, assistant VP of forecasting and analysis for NAHB, concurs, predicting a drop to approximately 6 percent by mid-2024. Yun also anticipates increased interest in adjustable-rate mortgages in the near term, with a return to the traditional 30-year fixed-rate mortgage for around 90 percent of Americans in the subsequent years. Greg McBride, CFA, Bankrate’s chief financial analyst, believes that the 30-year fixed-rate mortgage will remain the dominant choice, citing borrower certainty, investor appeal, and a robust secondary market.
Predictions for Home Prices Nationally
Yun envisions minimal fluctuations in nationwide purchase prices in the coming year, with changes of only about 5 percent in either direction. California, however, may experience a 10 percent decline due to its sensitivity to interest rate shifts. This trend is already evident in high-priced areas like San Francisco, where median home prices have fallen by 9.71 percent since the previous year. Over a five-year period, Yun expects prices to appreciate by a total of 15–25 percent. McBride anticipates annual home price appreciation in the low- to mid-single digits over the next five years, consistent with historical trends.
Is a Housing Market Crash Looming?
Despite displaying some bubble-like traits, Yun does not foresee a bursting of the residential real estate market. He predicts a low point in sales next year, with only 5.3 million units sold, followed by a gradual increase to an annual rate of 6 million units by 2027. Yun underscores that even if home prices decline by 5 percent (or 10 percent in California), it would not constitute a crash, as a true crash involves a one-third drop, and current inventory levels do not support such a scenario. Moreover, stringent lending standards today prevent the issuance of unaffordable loans, effectively keeping foreclosure rates low.
Transitioning to a Buyer’s Market
Yun anticipates the persistence of a seller’s market as long as housing inventory remains scarce. However, he envisions a shift towards a more balanced market within five years, where neither buyers nor sellers have a significant advantage, and outcomes depend on individual circumstances. Caroline Feeney, director of content and executive editor at HomeLight, notes that this shift away from a seller’s market has already begun, with 51 percent of HomeLight agents describing their current local market as such. She also expects a balanced market to emerge within a few years, with 55 percent of agents believing that markets that heated up rapidly during the pandemic are likely to cool down, favoring buyers.
Where Will New Homes Be Built, and What Types?
With hybrid work schedules and reduced commuting relevance, Yun predicts ongoing strength in suburban markets, particularly in areas with growing populations like the Carolinas, Florida, Texas, and Tennessee. This prediction is supported by Nanayakkara-Skillington of NAHB, who notes that 50 percent of new single-family construction is concentrated in the South, a region that also performs well in Bankrate’s Housing Heat Index.
In contrast, the number of single-family homes under construction has declined in recent years, while multi-family homes’ construction has increased. Feeney attributes this to the lower price tags of multi-family units and pressure on municipalities to address housing shortages and affordability. Nonetheless, with high mortgage rates and inflationary building material costs, Nanayakkara-Skillington expects growth in the multi-family market to stabilize in the coming years, with a projected 8 percent decrease in new housing starts in 2023 and an additional 5 percent decline in 2024.
